Shares of R&G Financial Corp. tumbled Tuesday, shedding more than one-quarter of their value, a day after the Puerto Rican company issued an update on its efforts to put to rest nearly two years of accounting problems.
Some of the news was positive, like its appointment of a chairman, but much of it was bad.
The San Juan company, which has battled accounting issues since 2005, said late Monday that it was not ready to restate earnings for the years 2002 through 2004 and therefore was unable to post earnings and a 10-K filing for 2005 by April 3, in order to avoid having its shares delisted by the New York Stock Exchange.
The New York exchange said in a press release late Monday that trading in R&G's common stock would be suspended by Feb. 22 at the latest because of the continued delay in releasing results.
Further, the company said that its failure to restate would have a greater impact than previously thought on stockholder equity. R&G gave investors a glimpse into its 2006 results, but there it showed deterioration in loan growth, though deposits grew.
Late Monday, R&G named Juan Agosto-Alicea, the former president and chairman of the Government Development Bank for Puerto Rico, to become its chairman on June 30, when Victor J. Galan's resignation takes effect. Mr. Galan, R&G's largest shareholder, resigned as chief executive in December in a dispute over how to characterize certain mortgage sales that are involved in the company's accounting woes, but he remained chairman. The company said he ignored advice from a legal consultant on the sales. Mr. Galan has denied ever discussing the sales with the lawyer.
Mr. Agosto-Alicea, meanwhile, is to join the company Thursday as vice chairman, a new post.
Analysts were divided on how to view the latest round of news from the company, which had $13.4 billion of assets at Sept. 30.
"I am disappointed that the company couldn't get its numbers done" in time to avoid delisting, analyst Joe Gladue of Cohen & Co. Inc. said Tuesday. He cut his rating for R&G's stock to "sell," from "hold."
But Bain Slack, an analyst at KBW Inc.'s Keefe, Bruyette & Woods Inc., said, "I think it's a sign that the company is done with the numbers; it is just waiting for the audit." He rates R&G's stock "market perform."
R&G's problems started in early 2005, when it was forced to change the valuation on its sizable position in interest-only securities, and subsequently discovered that it would have to change multiple loan sales to other Puerto Rican banking companies into loans. The latter process is continuing. On Feb. 5, R&G disclosed in a filing with the Securities and Exchange Commission that it had permission from the Federal Reserve Bank of New York, one of its regulators, to reclassify $514.2 million worth of loan transactions with First BanCorp, also of San Juan.
The company continues to operate under a memorandum of understanding with the Fed and other regulators, and is being investigated by the Securities and Exchange Commission.
Two other Puerto Rican companies, First BanCorp. and Doral Financial Corp., which was the first of the trio to manifest accounting issues, have already restated earnings. First BanCorp and Doral are also operating under memorandums of understanding.
On Monday, R&G said it "has experienced some delays" in producing its financial statements but did not give the cause.
R&G also said it was unable to specify a schedule for reporting 2005 or 2006 earnings but that it expects to finish its restatements for 2002 through 2004 this quarter. Meanwhile, its stockholder equity will probably be reduced by $185 million to $200 million as a result of the restatement, which exceeds a previous estimate of $183 million.
"The company will continue to work diligently to complete the process of restating and getting current the company's financial reporting obligations," Mr. Galan and CEO Rolando Rodriquez, said in a joint statement in the release.
Last year, deposits rose 7.7% from a year earlier, to $6.4 billion, driven by brokered funds. However, R&G's loan book fell 37%, to $3.7 billion because mortgage originations slowed and the island's economy deteriorated, the company said.
Mr. Slack of Keefe Bruyette said the prospect of delisting fueled Tuesday's sell-off. "I don't think today's sell-off was driven by fundamentals," he said. However, the delisting will force R&G to drop out of the Russell 2000 index, which would trigger automatic sales by index funds, he said.
The shares, which have fallen 85.8% since reaching their high of $36.60 in February 2005, closed down 26.2% Tuesday, at $5.61 per share.
R&G said its shares might qualify to trade on Pink Sheets LLC, a quotation service for over-the-counter stocks, if it can find a market maker. Keefe Bruyette said Tuesday that it would be a market maker in R&G stock.
